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Car Bubble Imploding

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May 05, 2008 – Comments (2)

A housing bubble wasn't enough.  The car bubble is falling apart now as well.  

Nouriel Roubini talks about it in the link.

There have been stories about people having loans for more then the value of their car, where new car buyers drive off the lot with a loan for a few thousand more than the value of the car because their trade in had an existing loan and they owed more on the trade in than the existing loan.  So, they drive off the lot in a situation that ensures they have even less chance of paying the new car off before it starts breaking down.

One thing the Nouriel mentions is the drive for over capacity due to the easy credit.  People were buying cars they couldn't afford, so the demand for cars was artifically high.  Now that credit has tightened the degree of the over capacity for supplying cars is becoming apparent. 

2 Comments – Post Your Own

#1) On May 05, 2008 at 8:31 AM, leohaas (35.73) wrote:

Yet another reason to sell any car industry stock!

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#2) On May 05, 2008 at 10:01 AM, Imperial1964 (97.93) wrote:

Dang. I'm long about 10 shares of 1980's Chryslers.  Fortunately, being a value investor, my cost basis isn't far above their liquidation value (scrap price).

Wishing I could hedge my position by shorting mid-sized SUVs, but it's not legal to sell cars you don't own.  They call that grand theft auto and title fraud.

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